The Lotus Affair by Joe Saward

[Frederik]

The Lotus Affair
September 28, 2010 by joesaward

When is a Lotus not a Lotus? This is the question. Proton says that “there is and always has been only one Lotus, the Lotus started by Colin Chapman”.

This statement is incorrect in that there are an awful lot of companies called Lotus. Lotus Ltd, for example, makes clothing and footwear; there is a celebrated software company called Lotus, which is now owned by IBM; there is the Light Of Truth Universal Shrine, otherwise known as Lotus, and any number of Chinese restaurants with the same name.

What is true is that Lotus Engineering – the company from which Group Lotus grew – has its roots in racing. In 1948 Colin Chapman modified an Austin 7 into a trials car. This became known as the Lotus Mk1 and was successful enough for rival racers to ask Chapman to build them replicas of his car. The Lotus Engineering Company, which was not a limited liability company in those days, was formed on January 1 1952. It was incorporated as Lotus Engineering Company Limited on September 25 1952. It was a partnership between Chapman and Michael Allen, although the latter soon departed.

Two years after that Team Lotus was established as an independent enterprise, in order to protect the companies from each other’s financial problems. However the success of Lotus Engineering was such that four years later it was restructured as the Lotus Group of Companies, which included Lotus Components Ltd, which built customer competition cars including the Seven, in component form for the home market and fully built for export; Lotus Cars Ltd, which produced the Type 14 Elite and subsequent road cars; and Lotus Developments Ltd, which dealt with the design and development of new cars for the two manufacturing companies. Along the way various companies came and went. Production of the Lotus Seven was sold to Caterham Cars in 1973. Lotus Components Ltd became Lotus Racing Limited in 1971, but was subsequently closed down. The Griston engineering company took on most of the personnel to form Group Racing Developments (GRD) which aimed to compete with March and Brabham in the customer racing car market. This stopped its operations at the end of 1974.

Team Lotus did use Group Lotus engineers to help with some of its developments, notably active suspension.

The modern Lotus Engineering was not established until 1980.

In 1978 Group Lotus started a relationship with DeLorean, to build cars with funding from the British Government. The financial side of this business was murky, involving a Panama-registered company called General Products Development Services Inc. The car went on sale in January 1981 but Delorean went bankrupt in 1982. Investigations revealed that millions of pounds of British Government money disappeared. Colin Chapman died before this was all revealed but Lotus executive Fred Bushell did go to jail for his part in the affair.

After Chapman’s death in December 1982 Group Lotus ran into trouble. In July 1985 it became a public limited company (plc), which meant that shares could be traded on the stock exchange. The following year General Motors bought the company.

Team Lotus struggled on in the hands of the Chapman Family. In 1990 Peter Collins and Peter Wright, purchased the Team Lotus name and logo from the Chapman-owned Team Lotus International Ltd and ran an organisation called Team Lotus Ltd. This survived until 1994 when the money ran out and it went into administration. David Hunt purchased the rights to the name and logo from the administrator.

There is little doubt that while the team and the group were both owned by the Chapman Family until 1985, the two organisations have gone their separate ways in the last 25 years.

Proton is now claiming that Hunt’s attempt to acquire the name Team Lotus was ineffective and that Group Lotus is the owner of all rights in the “Lotus” automotive brand including those relating to Formula 1. It also says that Tony Fernandes and 1 Malaysia Racing Team recognised this by taking a licence from Group Lotus to use the “Lotus” brand for the “Lotus Racing” team. Group Lotus has now terminated its licence to 1 Malaysia Racing Team to use the “Lotus Racing” brand in the 2011 and future Formula 1 seasons as a result of what it calls “flagrant and persistent breaches of the licence”.

Fernandes’s Tune Group has now acquired the rights to the name “Team Lotus” from David Hunt. Group Lotus claims that these rights to have no proper legal foundation and claims that Fernandes was well aware of this when he bought them. Proton says it will support Group Lotus in taking all necessary steps to protect the rights it claims and says it will resist any attempts by Fernandes or his companies to use the Lotus name next year.

The three shareholders of Lotus Racing have issued proceedings in the English High Court for a declaration that Team Lotus Ventures has the rights to use the Team Lotus name and everything associated with that brand in relation to F1.

“Racing under the Team Lotus name from 2011 means our licence with Group Lotus has now come to an end,” says the team’s Chief Executive Officer Riad Asmat. “In reality, this has nothing to do with how we will go racing in 2011, as the ownership of Team Lotus has been clearly defined for many years. David was approached a number of times about selling the rights of Team Lotus Ventures, including one official offer of from Proton/Group Lotus themselves. That must have been tempting for David, as the rightful owner of the Team Lotus brand and its rights. Oddly enough, Group Lotus also recently tried to revoke the Team Lotus trademarks at a hearing at the Trade Mark Registry, but they were unsuccessful. I suspect David’s misgivings about their previous offer to buy were justified by that action.

“The licence debate really is a non-issue. It was a simple licence, attached to a one year sponsorship deal with Proton for 2010 alone, and in fact for a tiny proportion of the amount invested by the shareholders into the team – approximately 1.5% of the total budget. Unfortunately we never reached the point where we discussed extending that one year deal. When we signed our licence to compete as Lotus Racing with Group Lotus, they were very clear that we could not make any reference to Team Lotus as they had no rights at all to the Team Lotus name or its rights. In fact, in the licence agreement between 1Malaysia Racing and Group Lotus the use of the Team Lotus name is expressly prohibited as they had agreed contractually, as long ago as 1985, that they had not rights to use that name. That was obviously something we had enormous respect for, and made no attempt to change until we could do so rightfully, and with a very clear understanding of what we had acquired in Team Lotus Ventures.

“So now the licence we ran under this year has been withdrawn by Group Lotus, and while we accept that this obviously means we have reached the end of that chapter, it opens up a new and very exciting one for everyone in our team. There will have to be some discussions with Proton and Group Lotus about the entitlement to terminate the licence. Frankly, they are trying to say that some very trivial points, including t-shirt design approvals of all things, gave them the right to terminate, but we thoroughly reject this.

“The details of what has been going on behind the scenes are now coming to light, and that’s good because it means the shareholders of Proton, the government, will now know the truth of what has been going on. However the important thing is to look at what we are doing to guarantee future success. Personally I think it’s odd that our colleagues at Group Lotus have not embraced what we are giving them – a global platform for creating huge awareness and great value for their operations, all at no cost to them.”

What is very clear is that this is a battle of egos and that no-one gains from the current mess. Group Lotus this week wants the spotlight on the launch of its planned new $179,000 Elite coupé at the Salon de l’Automobile in Paris. This is an attempt, which some feel is ill-considered, to put Lotus into competition with super car companies like Ferrari, McLaren and Porsche. Traditionally, Lotus was aimed at a lower segment of the luxury market. The Exige, which is a derivative of the Elise, which dates from the 1990s, retails at up to $51,860. The new management is now selling the Evora which retails at $73,200 and is hoping that this will generate the revenues to enable the company to take on the big guns in 2014 (a long time from now), with the expensive Elite. Group Lotus has also declared its intention to try to sell F1-inspired cars called the 125, a racing car complete with 3.5 litre Cosworth V8 engine and a six-speed semi automatic gearbox with paddle shift and is even offering the car in “a stylization of a classic Lotus livery”.

The whole mess must be sorted out at political level in Malaysia, where one group is trying to show itself to be more powerful than another. One thing is very clear: Malaysian Prime Minister Najib Razak will not be impressed by this. His 1 Malaysia concept of national unity is not working in this very high-profile case. Fernandes obviously buys into the idea, having named his team after it.

The folk at Proton do not seem to get it. Najib is their boss. Perhaps they should have a think about that…

[Frederik]

interesting blog ...